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Cano Health Inc. (CANO) Misconduct Case
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On March 31, 2023, Sternlicht, the head of Miami-based Starwood Capital Group, along with Elliot Cooperstone and Lewis Gold, resigned from the board of Cano Health (CANO), and Sternlicht issued a statement criticizing the leadership of Dr. Marlow Hernandez, the founder, and CEO of Cano Health.
Sternlicht openly called for Hernandez to resign. “To be crystal clear, I do not believe Marlow should remain the chairman and CEO of the company,” Sternlicht stated. “I believe that his continued tenure is harmful to the interests of stockholders and to Cano employees.”
Within the last 6 months, Miami-based primary care centers operator Cano Health Inc. (NASDAQ: CANO) changed its appearance from an attractive M&A target to a going concern story, takeover rumors were replaced by rumors of financial insolvency, and one of the largest stockholders sold out its position.
M&A Rumors Episode
- On September 22, 2022, Cano stock surged 32% after the Wall Street Journal reported that CVS Health Corp. (NYSE: CVS) and Humana Inc. (NASDAQ: HUM) were in talks to buy out Cano Health which focuses on senior primary healthcare and has 151 facilities across California, Florida, Texas, New Mexico, Nevada, and Puerto Rico. Cano’s stock price surged to $9.64 by early October following the reports that CVS was in exclusive talks to purchase the healthcare provider.
- In mid-October, however, Dealreporter leaked that CVS walked away from a potential acquisition of the senior-care facility operator after which the Company’s shares plunged by over 40%.
- There's been no solid news about the matter until January 10, 2023, when reports said that CVS is exploring an acquisition of Oak Street Health for more than $10 billion. Now Cano’s investors are left wondering if there was a Cano deal on the table at all and if the deal was indeed planned, whether it fell apart due to the high offer price, or because of the hidden issues that were revealed during the due diligence process.
Going Concern Scene
- Cano dived deeper, erasing another 35% of the market cap after issuing a second consecutive guidance cut along with weak Q3 financial results on November 10, 2022. Although revenue and total membership were up 33% and 40% year-over-year respectively, the company that operates senior-oriented primary care centers reduced its expectations for the annual revenue, EBITDA, and medical centers numbers forecast.
- Investors and analysts were concerned that the Company lost $112 million in the quarter and reported only $24 million in cash, compared to $163.2 million in Q3 2021. Multiple equity analysts cut their ratings and S&P Global Ratings downgraded its credit grade to B-, citing Cano’s weak credit measures that leave it with little room to outperform.
- It remains unclear to Investors why the Company's management, the Board of Directors, and activist shareholders did not take all the necessary steps to ensure the financial stability of the Company.
Stock Sell-Off Culmination
- On December 7, 2022, Bloomberg reported that Daniel Loeb’s Third Point LLC sold its entire stake in Cano amid mounting concerns about the healthcare provider’s liquidity and that some of Cano’s biggest creditors are in the early stage of organizing ahead of potential debt restructuring discussions. Earlier a NY-based asset management company had already disclosed a decreased stake of 3.5% in October, down from 6.4% in March.
- Looking back at the events of 2022, Loeb was the first to push Cano for a sale process in March, followed in August by the letter from Owl Creek Asset Management to Cano Health Board of Directors, strongly encouraging them to seek a strategic buyer. Both investors believed that following the SPAC deal backed by billionaire Barry Sternlicht by which the company went public, Cano Health was underperforming compared to its market peers.
- Now investors are left to guess whether Third Point’s exit is a sign of the absence of any prospects in the investment story or disagreement with the actions of the Company's management.
During all these events, Cano's shares managed to at first soar by 50% on M&A rumors, to then fall over 85% on liquidity concerns. The most remarkable thing is that all this occurred within just 3 months during which both long and short investors experienced significant depreciations of their positions.
Taking all the facts, events, and market reactions into account, Investors have reason to suspect that one or more market players violated the rights of shareholders, which resulted in significant investment losses for them.
Failure to Disclose,
Breach of Fiduciary duty,
Shock Event Date
11 January 2023